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FRESH FOOD: Poultry: Chicken feed no more

Trends in demand for corn mean retailers and consumers will have to get used to a new era of higher prices for poultry and other meats.

April 14, 2007, 08:00 pm

One of grocers' perennial dilemmas -- attracting more shoppers to the meat department -- is about to become that much more complicated, thanks to the ethanol industry's robust demand for corn -- a demand that's translating into higher retail prices for beef, pork, and chicken.

"There will be noticeable changes for consumers who've been used to finding a large variety of different kinds of meat at very good feature prices," says William P. Roenigk, s.v.p./chief economist for the Washington-based National Chicken Council (NCC). "Obviously, retailers will still run features on the major proteins, be it chicken, beef, or pork, but they probably won't do so quite as often, and when they do, feature prices will not be quite as significant as before."

Indeed, while increased corn prices are great news for grain farmers, higher feed prices are already taking a discernable toll on allied meat protein industries. Feeding costs for the poultry sector alone increased $610 million from late October through February, says Roenigk, adding that the wholesale price of chicken has recently risen more than 10 cents per pound.

Unlike previous cycles that have been driven by bad weather and related temporary market conditions, the high prices now facing the industry are prompted by ethanol subsidies and mandates set by federal laws and subsidies.

And though the NCC and other agriculture groups support the Bush Administration's call for the development of alternative fuels, it shouldn't be accomplished at the expense of America's key protein producers, says Roenigk, who foresees "a new era of costs associated with producing turkey, chicken, beef, and pork -- basically anything that uses, or competes with, corn to get to the marketplace."

In contrast with last year, when there was an oversupply of chicken, Roenigk notes that "the day of the 29-cent leg quarter is behind us, and I don't see that happening for a long time, if ever again. And while that's not necessarily a bad thing, consumers who do shop the meat case for bargains are going to find that challenge a little more difficult in the next few years."

"While we would all prefer to not have to deal with higher production costs and prices, it's out of our control," concedes Joe DePippo, president of FreeBird Chicken, a division of Fredericksburg, Pa.-based Hain Pure Protein Corp. "Therefore, we in the industry will continue to do everything we can to manage our costs and efficiencies. Grain prices will settle out where they settle out, and everybody is going to have deal with it in the same manner."

"As Americans became more comfortable with the higher costs of fueling their cars, we're all going to have to get comfortable paying more to fuel our bodies with the proteins we all love, and chicken is certainly the most popular," says DePippo, whose company offers premium lines of both fresh antibiotic-free and organic chickens humanely raised on family farms in Pennsylvania's Amish Country.

DePippo further notes that chicken's near 90 pound per capita consumption rate "far exceeds that of any other protein.

"The fact is, food costs are going up, and it is therefore not practical for any of us to think that we're going to be able to price products at levels we saw two to three years ago," he adds. "We all want to bring value to the consumer, but as we look to the future, we all need to be realistic about defining the value proposition. Is it simply price? I think it includes a lot of other elements," including quality, convenience, and brand confidence, among others.

The trend will likely hit some segments harder than others. One senior retail meat executive who requested anonymity says he believes consumers might be more willing to trade up to specialty chicken, which will still cost more than conventional but will still be half the price of beef steaks.

"I foresee continued growth for poultry that is antibiotic-free and fed an all-vegetable diet, as well as those brands that feature humane labeling on the package," the executive predicts. "I expect to see a rebalancing of the purchasing mix in regard to specialty and conventional chicken items," for which "price points are going to narrow.

"As people experience sticker shock," adds the executive, "I think there will be a re-evaluation of what's in the meat case, particularly among those who are into high-priced steaks who may well be looking for lower-priced alternatives more often. We're just going to have to find a new way to promote proteins without price as the lead."

Retailers can also expect to see increased numbers of consumers seeking out more convenience-oriented and nutritionally sound poultry products, many of which have made significant inroads in the past year.

Among those products is Pittsburg, Texas-based Pilgrim's Pride Corp.'s line of EatWellStayHealthy Kids baked chicken breast nuggets and baked popcorn chicken, launched last fall. The baked nuggets were the first to feature the USDA-regulated word "healthy" on the packaging, and are also certified by the American Heart Association (AHA) with its "heart-check mark" seal of approval.

"Our new breast nuggets and popcorn chicken are a convenient and healthy food choice for families with kids," says Dan Emery, Pilgrim's Pride's v.p. of marketing. "The product is performing very well with kids and their moms," the latter of whom "now have a healthy option and no longer have to feel guilty about feeding their kids something they love. It's more important than ever for parents to be able to choose healthy foods that are low in fat, calories, and carbohydrates for their children."

Salisbury, Md.-based Perdue Farms is also striving to add innovation to its lineup with the launch of a new line of fresh, boneless, skinless chicken breasts dubbed Perdue Perfect Portions. Billed as cooking more quickly and evenly, the new line is also easier to store, since each portion is individually wrapped, thus making it "extra convenient" to cook the desired amount and easily store the remainder in a reclosable bag for later use.

In a bid to broaden its refrigerated convenience meat base by making a good thing better, Springdale, Ark.-based Tyson Foods, Inc. recently relaunched its Oven Roasted Chicken line, which originally debuted in 1985.

"It's been a solid performer through the years, but the short 17-day shelf life was really problematic for retailers," explains Carolyn Rehbock, Tyson's v.p. of insight and innovation. "What we've been able to do is convert to a new high-pressure pasteurization technology that allows us to offer retailers 45 days from point of receipt, which is a substantial improvement."

Rehbock says the post-packaging pasteurization technology enhances food safety while substantially increasing the shelf life of the product from the previous 14-day limit to 45 days. "The extended shelf life will significantly reduce shrink and markdowns, and improve net profits for retailers," she notes, adding that the new vertical packaging format maximizes shelf space, allowing 25 percent to 35 percent more facings.

In addition to extended shelf life, the longstanding Tyson line has been further enhanced with more convenient easy-peel packaging featuring graphics that note the product is preservative-free and vacuum-sealed for freshness, says Rehbock, as well as finished product photography to increase appetite appeal, and a "Heat 'N Eat Entrees" graphic to emphasize easy preparation.

Tyson also recently rolled out Trimmed and Ready, a line of seven hand-trimmed cuts that aim to deliver "the highest-quality chicken for consumers, since there is no additional trimming or handling required," notes David Hogberg, v.p./fresh meal solutions for the manufacturer.

"Considering more than three-quarters of all fresh meat purchases are fresh chicken, and more than half of consumers are currently trimming fat prior to cooking, we believe our Trimmed and Ready products fill a real consumer need," says Hogberg, adding that the resealable outer bag holds individually wrapped portions, allowing consumers to take out only the number of pieces they need. "It's an ideal product for consumers who don't really like to handle fresh meat," he observes.

Based on research findings that approximately 45 percent of consumers who buy boneless breast meat are feeding one to two people, "[w]e think the bag-in-bag product will drive incremental volume by increasing household penetration among light users who would prefer individual portions," says Hogberg. "At the same time, heavy and medium users of fresh chicken can trade up for the added convenience of freezer-ready."